Dow Closes Down 2, Nasdaq Drops 2

Published 8:00 pm, Monday, May 19, 2003

The stock market gave up early gains and finished narrowly lower Tuesday as fears about mad cow disease and a heightened terror alert pressured Wall Street.

Analysts said investors chose to play it safe and cash in profits from several weeks of advances despite better-than-expected earnings from Home Depot.

"The news is prompting worries about a mad cow infestation and the probability it gets here," said Tony Cecin, director of institutional trading at US Bancorp Piper Jaffray. "This just gives them something else to worry about."

The Dow Jones industrial average closed down 2.03, or 0.02 percent, at 8,491.36, for a three-day loss of 221 points. Earlier in the day, the blue chips gained as much as 56 points, although they also recovered ground after an intraday drop of 76 points.

Canadian officials said an 8-year-old cow in Alberta was diagnosed with mad cow disease. They said the animal, which was slaughtered Jan. 31, did not go into the food chain and the herd it came from has been isolated for testing.

In response, U.S. health officials immediately banned imports of cattle, beef, beef-based products and animal feed from Canada, although Agriculture Secretary Ann Veneman said the situation "appears to be an isolated case."

Shares of beef producers and retailers sagged on the news. Dow component McDonald's fell $1.21 to $16.95, while Tyson Foods dropped 46 cents to $9.01 and Outback Steakhouse lost $1.16 to $35.46.

Meanwhile, the U.S. government increased the terror alert from yellow to orange, the second highest level indicating a high risk of attacks. Officials provided few specific reasons for the change, which comes amid a wave of terrorist attacks overseas.

Investors in recent days have taken profits on fears of a tepid economic recovery and concerns that a weak dollar will limit foreign investment. Analysts say stocks will likely trade in a range until investors see clear evidence of economic improvement.

"When doubts creep in like a possible cessation of a strong dollar policy, you see a dramatic reaction. That means there's a lot of doubt out there for the ability of this market to keep moving up," said Brian Pears, head equity trader at Victory Capital Management.

Dow component Home Depot climbed $2.60, or 9.3 percent, to $30.67 after the nation's largest home improvement chain reported quarterly profits that beat Wall Street's estimates by 2 cents a share; it also posted same-store sales that were higher than estimates.

"Home Depot is a company that you can use as a proxy for consumer sentiment," Pears said. "So it helps to see a major stock like this move."

Nordstrom rose $1.39 to $17.25 after the retailer reported quarterly profits that beat estimates; it also expects second-quarter earnings of 35 cents to 40 cents a share, compared with analysts' expectations of 35 cents.

Hewlett-Packard rose 17 cents to $17.05 ahead of the technology's company's quarterly earnings report. After the market closed, Hewlett-Packard reported profits that beat expectations by 2 cents per share; the company also backed analysts' estimates for the rest of the year. Shares surged in extended hours trading, rising $1.30.

Losers included the drug sector, which declined for a second day after a Supreme Court ruling that could force pharmaceutical companies to lower prices in Maine. Merck fell $1.66 to $54.99, while Pfizer dropped 70 cents to $31.10 and Bristol-Myers Squibb lost $1.10 to $23.35.

Staples declined 84 cents to $18.90 after the No. 1 office supply chain reported a drop in first-quarter earnings; however, excluding adjustments for an accounting change, its operating earnings beat estimates by a penny.